What Does The Bad News At Sotheby's Mean For Luxury Stocks?

Sotheby's stock is taking a pounding today because five of the big works in the impressionist sale last night went unsold and 10 others sold beneath their minimum estimate. Particularly painful for the auction house as it had promised sellers fixed prices. Redburn analyst Lisa Rachal says she sees a negative read-across for watch companies like Richemont, Bulgari and Swatch but not the luxury stocks like PPR and LVMH because, "It is much easier to put off buying a (or another) fancy new watch for a bit longer than to stop buying handbags."

Yesterday Ralph Lauren said that their luxury customers were still going strong, with weakness showing in their lower-priced brands. The just released October retail sales data is also reassuring for luxury companies. The 'genuine' luxury stores, Saks and Neiman Marcus, reported same store sales growth of +10.6 percent and +8.5 percent respectively, an acceleration from September at +7.7 percent and +6 percent
The 'accessible' luxury stores, Nordstrom and Macy's, reported same store sales declines of -2.4 percent and -1.5 percent respectively, a deceleration from September at +3.2 percent in the case of Nordstrom and improvement from September at -2.7 percent in the case of Macy's. Rachal says that in its pre-recorded conference call Nordstrom noted that designer wear and accessories outperformed the rest of the categories.

I fear that the Sotheby's news is very bad indeed for luxury. Afterall, handbags cost almost as much as watches these days -- sometimes more. Of course, they're still less than impressionist paintings, but they are bought by the same luxury consumer and that has so far proved resiliant to the U.S. economic woes. Blogger Howard Lindzon says he uses the Sotheby's stock as a loose money indicator and "when this stock tanks, it does not bode well for the economy or market." But bloggers on Seeking Alpha compared the past performance of Sotheby's to that of the S&P 500 and found it isn't that simple, but decline in its stock has been an indicator that a bear market is coming to a close.